EMERGING MARKETS-S.African assets rally further on reform hopes from new ANC leader

LONDON, Dec 19 (Reuters) - South African stocks and bonds swept higher on Tuesday, extending gains after the election of market-friendly Cyril Ramaphosa as leader of the ruling ANC party, while the rand hovered near nine-month highs versus the dollar.

Broader emerging equities were also in fine fettle, with MSCI’s benchmark stocks index up 0.4 percent following a record-setting session on Wall Street.

In South Africa, Ramaphosa has promised to fight corruption and revitalise the economy, encouraging foreign investors who are becoming optimistic the country may avoid a ratings downgrade by Moody’s early next year.

South Africa’s banking index, the barometer of economic sentiment, jumped over seven percent, its best one-day performance in two years, while the broader index rose 1.3 percent.

“Ramaphosa favours orthodox policies that might signal a turnaround to the future economic development of the country following a number of very disappointing years,” Daniel Moreno, head of emerging market debt at Mirabaud Asset Management, said.

“But the challenges on both the political and economic front indicate investors should remain cautious.”

Sovereign dollar bonds extended gains made on Monday, trading at three-month highs. Local currency bonds also opened firmer, with yields on the 2026 benchmark issue touching a two-month low.

The rand, which has risen seven percent off last Thursday’s close and is up about 15 percent in the past month, trimmed some of those gains while South African five-year credit default swaps were at 163 basis points, according to IHS Markit, just off a three-month low hit on Monday.

Many analysts such as Phoenix Kalen at Societe Generale, warned much of the good news was now priced in.

Even if Ramaphosa can take over as the country’s president he still has to stem party infighting, stabilise debt metrics and the fiscal position and tackle the numerous structural bottlenecks, she noted.

Indian shares firmed 0.6 percent, boosted by the ruling party’s win in state elections. The rupee was at its strongest against the dollar since mid-September.

The Hungarian forint traded near two-week highs against the euro before a central bank meeting that is expected to hold rates at a record low 0.9 percent but could resort to further unconventional policy easing measures.